ONGC stands tall
Closing

Markets came off the day’s highs during the closing hours of trade but have nonetheless managed to end the day on a positive note. Thus, while Sensex edged higher by around 110 points (up 0.7%), NSE Nifty closed the day with gains of around 35 points (up 0.7%). BSE Midcap and Small cap indices saw some profit booking today, especially in the former as it lost around 0.6% whereas the small cap index was down only marginally today. On the Sensex, two stocks gained for every one that declined.

Asian indices closed in the red today whereas Europe is trading mostly in the positive currently. The rupee was trading at Rs 46.8 to the dollar at the time of writing.

Indian stocks were the only one amongst the major Asian indices to have ended the day on a positive note. In fact, even here, nearly 40% of the gains on the Sensex were driven by just one stock, ONGC. The public sector behemoth gained a massive 8% on the back of expectations that good sense of oil price deregulation seems to be finally dawning upon India’s political class. And rightly so! They do not look beyond their European counterparts to know the deadly consequences of reckless spending by the Governments. Thankfully, due to its growing economy and due to the fact that it can print its own currency, India has escaped the fate that has befallen the so called PIIGS group of nations. Hopefully, the ruling with respect to pricing of natural gas is just one of the many steps that the Indian government takes in the future and helps steer its finances towards fiscal sanity.

Cement and VSF major Grasim announced its 4QFY10 and full year results today. Led by growth in both its core businesses of cement and VSF, topline for the full year edged higher by 15% YoY whereas bottomline grew by 66% as margins expanded strongly. For the quarter, bottomline growth came in at 57% YoY on the back of a 16% YoY growth in topline, yet again signifying strong expansion in margins. If one considers the performance of just the VSF division, the only business that will be housed in Grasim going forward, then the bottomline for the full year has grown by 27% YoY whereas that for the fourth quarter has suffered a fall of 25% YoY. The stock closed lower by 2% on the bourses today.

Meanwhile, food inflation continues to torment and trouble the Indian populace. As per reports just coming in, food inflation has gone up a notch and has touched 16.5% for the week ended May 8. It should be noted that the same ruled at 16.4% levels in the previous week. Difficulty in maintaining the supply of perishables during the scorching summer months has proven to be the key reason behind the jump in food inflation. It is believed that situation would continue to remain like this at least for the next 2-3 months and it is only after the monsoons have progressed satisfactorily, will some clarity emerge. India’s Finance Minister has set an ambitious target, expecting inflation to fall below 5% by the end of the fiscal as against the 9.6% rate that ruled in the month of April.

Largecaps outperform small, midcaps
01:30 pm

Buying activity led the Indian market to rise further in the green during the previous two hours of trade. Currently, stocks from across the sectors are trading firm led by those from the oil & gas, and banking spaces. However, realty stocks are the sole loser as the BSE-Realty index is trading lower by 0.4%.

The BSE-Sensex is trading higher by 180 points (up 1.1%), while NSE-Nifty is trading higher by 50 points (up 1.1%). The BSE-Midcap index is trading higher by 0.4%, while the BSE-Smallcap index is up by 0.3%. The rupee is trading at 46.64 to the US dollar.

Stocks of telecom companies are trading firm today. The key gainers include Idea Cellular, Reliance Communications, MTNL, Tata Teleservices (Maharashtra) and Bharti Airtel. Gains in these stocks are on the back of the completion of the 3G auction process. With the price of 3G spectrum touching levels of Rs 168 bn for a pan-India license, there was a good amount of concern amidst the investing community. This is especially when compared to the reserve price of Rs 35 bn (for a pan-India license). However, none of the telecom operators have bid for spectrum in all circles, thereby reducing the overall concerns to a certain extent. However, the fact that the telecom operators need to take on good amount of debt on their books does remain a concern. The stocks of companies such as Idea Cellular and Reliance Communications are possibly trading higher than that of Bharti's as they will be shelling out less than 50% and 30% respectively as to what Bharti will be spending. At this point, it would be too soon to say whether this is a positive or a negative for companies considering that their approaches and strategies to this auction would have been different. However, it will be interesting to see who will be the most successful in terms of the service launch going forward.

India's largest adhesive manufacturer Pidilite announced its 4QFY10 and FY10 results yesterday. The company's top line for the year grew by 9.3% YoY. This growth was aided by strong performance by the company's consumer & bazaar products and industrial products segments. Pidilite's operating margins expanded by 6.5% as a result of fall in raw material and lower other expenditure as a percentage of sales. Bottom line of the company doubled during the year. This was on the back of strong growth in operating income and higher other income recorded during the year. However, when adjusted for foreign exchange losses, net profit grew by 86% YoY during FY10. For 4QFY10 the company's sales grew by 17% while the net profit fell by 19% YoY. This is due to foreign exchange gain recorded in 4QFY09. When adjusted for foreign exchange income, net profit for the quarter grew by 62% YoY.

Energy stocks lead the gainers
11:30 am

Indian markets pared the opening gains as investors chose to book profits in heavyweights during the previous two hours of trade. Stocks from energy and PSU space are seeing buying interest while stocks from consumer goods and realty space are trading in the red on the back of selling by investors.

BSE-Sensex is trading up 90 points while NSE-Nifty is trading 25 points above the dotted line. BSE-Midcap index is trading marginally in the green while the BSE-Smallcap index is trading 0.1% above yesterday's closing. The rupee is trading at 46.65 to the US dollar.

As per a leading financial daily, state owned power transmission company Power Grid Corporation of India Limited (PGCIL) is planning to float tenders worth around Rs 640 bn in the current fiscal year. These tenders are for 9 new high-capacity corridors for transmitting power from projects in Orissa, Sikkim, Jharkhand, Chhattisgarh, Madhya Pradesh, Andhra Pradesh and Tamil Nadu. These 9 corridors are aimed towards transmitting electricity from 38 private developers, having a generation capacity of around 42,000MW. While the transmission link from Orissa has already received approval from Central Electricity Authority, notice inviting tenders (NITs) are currently under preparation. These NITs are expected to be floated around August. The company expects that after the floating of NITs, it would take about a year to award them.

In the meantime, the company has taken approval from its share holders for expanding its debt limit from Rs 500 bn to Rs 800 bn. While this is a positive for the company, reflecting that its expansion plans are on track, this tender is also expected to be a major positive for transmission engineering procurement and construction firms like Jyoti Structures Ltd, KEC International, Gammon India Ltd and Crompton Greaves, amongst others.

A leading business daily has reported that India's largest utility vehicle manufacturer Mahindra & Mahindra (M&M) is looking at launching its pickup trucks in the US market by the end of this year. The US market is the world's biggest pick-up truck market with annual sales of about 13 m units. It is reported that the company will initially manufacture the trucks at the company's Chakan facility (near Pune) and then export the units to US. The company plans to manufacture these trucks locally (in the US) with the help of a local partner sometime in the future. It may be noted that M&M had planned to enter the US market in December 2008. However due to the overall slowdown it had deferred its plan.

This is the first time an Indian car manufacturer is foraying into the US market. As such, it would definitely be a test. The company will also have to compete with the likes of Toyota, Ford, GM and Nissan in this segment. However, one advantage that M&M has is that its pickup trucks run on diesel. Currently, no pick-up manufacturer offers a diesel option. As per the company, it is targeting a 5 to 7% market share during the first year of launch.

Markets begin on a positive note
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices have managed to hold on to their gains since the initial trades. Other key Asian markets are in the red with Indonesia (down 0.9%) leading the pack of losers. The US markets closed lower by 0.6% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with auto and metal majors attracting investors' favour. The BSE-Sensex is trading higher by around 105 points, while the NSE-Nifty is up by about 30 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 1% and 1.2% respectively. The rupee is trading at 46.35 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include ONGC and Gail. As per a leading business daily, the government has raised the price of administered price mechanism (APM) gas to US$ 4.2 per m British thermal unit (mBtu). This is at par with the price of Reliance Industries' KG-D6 gas. APM gas is produced by ONGC and OIL from the blocks nominated to them by the government. It has been a long standing demand of ONGC that its gas prices be revised upwards as the company was incurring losses at the existing price of about US$ 1.8 per mBtu. The higher prices will help the upstream giant recoup its losses.

It may be noted that there is no uniform price of natural gas in India. It varies widely depending on the source of supply, with APM gas being the cheapest. Higher APM gas prices will lead to higher CNG prices by almost 20-35% depending on the city. It will also affect power and fertiliser companies to the extent they are unable to pass on the cost to the customer. Interestingly, both Reliance Industries and ONGC feel that even US$ 4.2 per mBtu is an unviable price for producing gas from new and smaller gas fields in the KG basin. Hence, it won't come as a surprise if the government revises prices further upwards in the future.

Telecom stocks have opened the day on a positive note. Gainers here include Idea Cellular and Reliance Communications (RCom). RCom declared its FY10 results recently. The company reported a marginal 0.3% YoY decline in revenues during the year. While the company's wireless business saw its sales decline by 4% YoY, sales of its other two segments i.e., global and broadband increased by 23% YoY and 13% YoY during FY10. On a quarter on quarter basis, average revenues per user, average minutes of usage and average revenue per minute were lower by 7%, 4% and 2% respectively during 4QFY10. The company's operating margins contracted by 4% YoY to 30.8% during FY10 on the back of higher other expenditure, i.e. network operations, sales and administration expenses. At the bottomline level, the company posted a decline of 23% YoY for the full year.

3G auction ends: And the winner is...
Pre-Open

The 34-day auction of 3G mobile spectrum finally ended yesterday. The government has reaped a bounty given that operators have bid around Rs 677 bn for the much-sought after spectrum. Bharti Airtel and Reliance Communications have won the bids for 13 regions each. They would need to shell out Rs 123 bn and Rs 85 bn respectively for these wins. Vodafone won nine regions for Rs 116 bn.

These companies will now face the challenge of pricing their 3G offerings in such a way that creates demand for the service and at the same time is a profitable proposition for them. This however looks highly improbable in the initial years. This is considering India's 'ultra-low priced' telecom market that will make it difficult for these companies to get consumers to pay much higher prices for using 3G services.

After all, these companies will have fresh memories of the European experience at the start of this decade. Then, European telcos had booked heavy losses after they paid more than US$ 100 bn to buy 3G licenses and then not finding enough consumers for the same.

Anyways, the success of the 3G auctions is good news for the government. The Rs 677 bn mop-up will help the government cut its fiscal deficit to nearly 4.9% of GDP in FY11, from 5.5% targeted in the Budget. For mobile companies, it's a large sum of money that has to be paid out. And this is at a time when companies are facing severe pricing pressure in the 2G space!